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Definition: blockchain

The underlying architecture of Bitcoin and other financial systems. The blockchain is a distributed ledger that provides verifiable proof of a transaction between two parties. There is no central repository. The blockchain is continuously updated and replicated on many nodes dedicated to that platform.

Using Bitcoin as the example, blocks of transactions are created when parties exchange coins, one block approximately every 10 minutes. All the blocks are linked (see illustration below). By using public/private key pairs, only Bitcoin owners can transfer their coins, but the authenticity of the transactions can be verified by anyone. The date and amount of coins transferred are transparent but not the parties involved in the transaction. See public key cryptography.

Not Just for Bitcoin
Because the blockchain algorithm provides a robust list of rightful ownership, both the public and private sectors are using or exploring blockchain technologies for digital currencies other than Bitcoin as well as applications such as contracts, fundraising and title registration. By recording transactions without a middleman, performance is improved, and not having a central point of attack means greater security. In addition, transactions cannot be reversed or altered. As a trusted protocol, proponents claim that blockchain systems will eventually revolutionize every aspect of the financial world. See ICO, Bitcoin mining, Bitcoin, Litecoin and Ethereum.

The Blockchain - One-Way Linkage

Blocks are chained together by storing the hash of the header of the previous block. This prevents transactions from being modified or refuted. If a transaction within a block were altered, the link to the subsequent block would be broken. The Merkle root is a hashed summary of transactions that is used for quick verification (see Merkle tree). See cryptographic hash function.